Industrial Park Real Estate

What is industrial park real estate?

Industrial park real estate is understood as investment projects to build industrial parks (IZs), warehouses, factories for rent, offices for lease, urban areas and projects to invest in premises to serve industrial production.

Industrial park real estate is also associated with the concept of industrial land. In which, industrial park land will be used in the form of land lease. This is specified in Clause 2, Article 149 of the Land Law 2013 as follows:

The State leases land to economic organizations, overseas Vietnamese and foreign-invested companies to invest in the construction and business of infrastructure in industrial zones, industrial clusters and export processing zones.

As for the land leased area with annual land rental payment, the individual who is leased land by the State has the right to sublease the land in the form of annual land rental payment; for the part of the land leased area with one-time payment of land rent for the entire lease period, the individual who is leased land by the State has the right to sublease the land in the form of one-time payment of land rent for the entire lease period or payment annual land rental.

Investors are exempted from land rent for the land area for construction of infrastructure for common use in industrial zones, industrial clusters and export processing zones.

According to Article 51 of Decree 43/2014/ND-CP guiding the implementation of the Land Law, the land use term in an industrial park project is calculated according to the duration of the investment project. In case the duration of the investment project is longer than the remaining land use term of the industrial park, the enterprise investing in the construction and business of infrastructure in the industrial park must obtain permission from the competent state agency for permission adjust the land use term accordingly but the total land use term must not exceed 70 years and must pay land use levy or land rent for the extended land area.

Advantages of Vietnam’s industrial real estate market

Vietnam has young and abundant human resources, cheap labor costs, and increasingly improved human resources are the factors that attract many large companies and corporations to set up factories here. The number of young Vietnamese workers who know Chinese, Japanese and Korean is increasing, meeting the job demands of companies.

The rental fee of industrial land in Vietnam is quite low when compared to other countries in Southeast Asia, even 30-40% lower. In addition to industrial land leasing, our country’s industrial real estate market also has good growth in the rental of ready-built warehouses and factories. It is forecasted that the supply of ready-built factories will continue to grow in the North and South markets.

Vietnam is in the period of industrialization and modernization. Therefore, the industrial sector is also prioritized for development. In addition, Vietnam’s great preferential policies such as reducing tariff barriers and streamlining investment licensing procedures have brought about great effectiveness in attracting foreign investment, making it easier for companies to decided to set up a factory in Vietnam.

The system of infrastructure and utilities is increasingly focused on investment, upgrading, and enhancing regional connectivity to help the process of transporting materials and goods to the consumer market quickly and conveniently.

Vietnam’s participation in the Free Trade Agreement (FTA) has opened up many opportunities for the development of the industrial real estate market. Through this Agreement, a series of tariffs are eliminated, Vietnam also has more opportunities to exchange science and technology with developed countries, thereby transforming from exporting goods of low value. export goods of higher value.

Along with that, the US-China trade war forced large corporations to plan for the relocation of production plants from China to safer countries. Experts say that industrial real estate in the North of our country is most affected by this war because it is close to China, and it is convenient to move factories. Specifically, Quang Ninh, Hai Phong, Bac Ninh, Bac Giang, Nam Dinh … are the ideal provinces and cities for foreign companies and corporations to stop. Since then, the industrial real estate market in the North will become more exciting than before.

Prospects and challenges of IP real estate in 2023

Continuous growth

Information from the Vietnam Association of Realtors (VARS) said that there are currently 563 industrial parks under planning in 61/63 provinces and cities nationwide, including: 397 established industrial parks, 292 industrial parks come into operation, 106 industrial parks are under construction, with a total natural land area of ​​about 35.7 thousand ha; industrial land area 23.8 thousand ha.

Note

The 5 provinces and cities with the most active industrial parks include: Dong Nai, Binh Duong, Ho Chi Minh City, Long An and Bac Ninh.

According to VARS, the rental price of industrial park real estate in 2022 will increase by about 10% compared to the previous period, averaging 100-120 USD/m2/lease cycle and will continue to increase. Specifically, in the industrial zones in the North, the rental price ranges from 90-120 USD/m2/lease cycle. As for the southern region, the Ho Chi Minh City market recorded an average rental price ranging from 180-300 USD/m2, followed by Long An with an average rent of about 125-275 USD/m2, Binh Duong From 100-250 USD/m2, Dong Nai is from 100-200 USD/m2. The above rates are per rental period.

Challenge

Pressure from supply and economic downturn

The main difficulties come from the economy with a large openness, which depends on large markets, in the context that the world economy is showing signs of slowing down or is at the beginning of recession, inflation is increasing, and the currency policy is tightening in many countries.

As an example, since the last quarter of 2022, Cushman & Wakefield has recorded a continued upward trend in rents across all industrial real estate segments in the southern market. However, the occupancy rate decreased as new supply entered the market and the demand for ready-built warehouses showed signs of slowing down.

Industrial park land for lease reached 28,170 ha, up 1% qoq and 12% yoy. The occupancy rate was close to 81% stable QoQ and down 5% YoY. The average rental price reached 159USD/m2/lease cycle, up 3% qoq and 10% y/y.

The supply of ready-built factories reached about 4.8 million m2, up 2% qoq and 17% yoy. The occupancy rate was close to 80%, down 6 percentage points compared to the previous quarter and last year. The average rent is 4.6USD/m2/month, down 3% from last year, stable compared to the previous quarter

The supply of ready-built warehouses reached 5 million m2, up 9% QoQ and 39% YoY. The occupancy rate was close to 76%, down 3% from the previous quarter and down 9% from last year. The average rent was US$4.4/m2/month, up 1% qoq and 10% y/y.

Abundant supply of warehouses

Ready-built warehouse market recorded more than 300,000m2 of new supply, mainly in Dong Nai and Long An provinces. Occupancy rates in the industrial segments mostly decreased due to new supply entering, although the occupancy rate of the warehouse segment dropped sharply due to sluggish demand, especially in export sectors.

From 2023 onwards, the market will receive an abundant supply of warehouses. Meanwhile, the supply of industrial land will become limited in 2023 due to lengthy legal proceedings. The new supply will put pressure on warehouse rents, leaving future rents unchanged or even reduced.

FDI enterprises invest in industrial park real estate

Vietnam is one of the countries that attracts large manufacturers such as Lego (invested capital of 1 billion USD), LG with a plan to invest another 4 billion USD in Vietnam with the goal of turning Vietnam into a smartphone manufacturers in the future, as well as Foxconn, one of Apple’s main suppliers, is planning to invest $300 million.

Samsung is also looking to increase its investment in Vietnam to $20 billion, focusing on artificial intelligence, big data and other areas.

In 2022, Quanta Computer – the world’s third largest outsourcing company is said to be planning to build a factory in the North, where the company is expected to fulfill orders for Apple MacBooks; BOE Technology Group Co Ltd (China), a supplier of both Apple Inc and Samsung Electronics Co Ltd, plans to invest a large amount of capital to build two factories in Vietnam with a leased area of ​​100 hectares in the North.

In addition, investment in Vietnam’s industrial zones is considered attractive because the VND depreciates less against the currencies of countries in the region such as Indonesia, Thailand, India and Malaysia and other key markets other Asia Pacific countries such as Japan.

Vietnam’s FDI attraction policies also help attract investors by offering many incentives such as corporate income tax exemption for the first 4 years of operation, 50% corporate income tax reduction for the next 5 years and other business support incentives.

Industrial park land rental prices in Vietnam are still low compared to ASEAN countries, specifically 30~36% lower than Indonesia and Thailand. At the same time, the supporting infrastructure connecting industrial parks continues to be improved.

Enterprises with foreign capital are allowed to conduct business in all forms of real estate

Compared with domestic enterprises, foreign-invested enterprises are more limited in the scope of real estate business. Pursuant to Article 11 of the Law on Real Estate Business 2014, the scope of real estate business of foreign-invested enterprises is as follows:

  • Renting houses and construction works for sublease;
  • For land leased by the State, it is allowed to invest in the construction of houses for lease; invest in the construction of houses and construction works other than houses for sale, lease, or lease-purchase;
  • Receive transfer of the whole or part of real estate project of the investor to build houses, construction works for sale, lease, lease purchase;
  • For land allocated by the State, it is allowed to invest in the construction of houses for sale, lease, or lease-purchase;
  • For leased land in industrial parks, industrial clusters, export processing zones, hi-tech parks and economic zones, they may invest in building houses and construction works for business according to the right land use purposes.

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